African Small Businesses, Farmers Get Protection with Micro-Insurance

George Kamau Githome uses a feather duster to clean off hardware and bootleg movies displayed for sale at his kiosk in Mathare, one of Nairobi, Kenya's largest slums.

Githome and his family of 10 kids recently lost everything they owned in a fire. But he was able to rebuild because he had purchased micro-insurance, a new product making inroads among small-scale African farmers and business owners.

"When they came, they took photos, and saw how helpless I was. I had nothing," he said. "Then they paid off my loan and supported me with something small. I started this business you see out here and the result you see inside."

Most African farmers and small businesses operate with no way to protect themselves if disaster strikes. Insurers have been slow to tailor their products to the African continent, experts say, and their methods of operation, using complex contracts distributed through networks of agents, tends to only reach the urban elite.

But that may be starting to change. A handful of companies are now offering inexpensive, tech-driven micro-insurance and are making it easy for ordinary Africans to sign up.

The company Githome used, MicroEnsure, offers micro-insurance to small-business owners, ranging from farmers in the bush to small kiosk owners in downtown Nairobi.

"We enable them to be able to enroll as simple as using their mobile phone just by dialing a particular short code on their phone and then registering their product just by using their first name and their last name," he said.

Henry Jaru, a smallholder farmer in northern Nigeria, is buying micro-insurance from another company, Pula, to protect his family farm from the impacts of poor rainfall, army worm infestations and other threats to their crops.

"Normally by this time the crops would have gone far but you see we're still planting some of them," he said. "So I think, we're hoping that [will protect us if] we experience any shortcoming from the rain or the worms this year."

Pula insures groups of farmers, using publicly available satellite data to track weather patterns, assess the risk and set prices.

"When Pula came into the country, they came with the idea of an index insurance, which means that you don't need to necessarily visit every smallholder farmers," said Samson Ajibola, Pula's senior project manager in Nigeria. "You can insure aggregation of farmers under just one policy without necessarily needing to visit each of them."

Pula also bundles the policies into small loans or purchases of fertilizer so small-hold farmers are automatically insured.

But older farmers, like Jaru's father Thomas, are still skeptical because of bad experiences with insurance companies.

"Generally when the time comes for them to pay you, indemnify you, you will not find them," said Thomas Jaru. "They begin to show you the small print - you didn't do this, you didn't do that out of the policy. So, it can ruin the whole thing and people get discouraged."

Micro-insurance providers hope their services can change that perception and turn a profit while giving Africa's small farmers and businesses some protection if and when things go wrong.